Weak ADP Report Increases Intrigue Over Tomorrow’s Jobs Numbers

• ADP reported the first month of private sector job losses in over two years this morning and that’s rekindled hopes for a July rate cut, and it also increases the intrigue for tomorrow’s BLS jobs report. Toss in some political intrigue into the mix with the House now attempting to pass what the Senate sent over, and with more than enough congressman already voicing concerns to prevent passage there’s no shortage of trading catalysts for today. Currently, the 10yr is yielding 4.29%, up 4bps on the day, while the 2yr is yielding 3.77%, down 1bp in early trading.

 

• Fed Chair Jerome Powell said yesterday at the ECB forum in Portugal that the Fed would have eased monetary policy by now if not for President Donald Trump’s tariff plan. When asked during a panel if the Fed would have lowered rates again this year had Trump not announced his controversial plan to impose higher levies on imported goods earlier this year, Powell said, “I think that’s right.”  He added, “In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs.”

 

• Powell was asked if July would be too soon for markets to expect a rate cut. He answered that that he “really can’t say” and that “it’s going to depend on the data.” Fed funds futures traders are pricing in a 75% likelihood that the central bank once again holds rates steady at the July policy gathering, according to the CME futures market (post ADP release, see below).  In a familiar refrain, Powell added that “We are going meeting by meeting. I wouldn’t take any meeting off the table or put it directly on the table. It’s going to depend on how the data evolve.” When asked if he would stay on as Fed governor after his term as chair ends next May, Powell responded, “I have nothing for you on that today.” Powell’s term as a Fed chair ends in 2026, while his position as governor is set to run into 2028.

 

• The Senate passed their version of the budget bill yesterday, relying on Vice President Vance to break a 50-50 tie. Republican senators Tillis (NC), Paul (KY), and Collins (ME) were no votes along with all 47 Democrats requiring Vance’s tie-breaking vote. Alaska Senator Lisa Murkowski, as is her style, waffled during debates, but in the end secured what she needed for Alaska (a state with approximately 741,000 residents) and remained in the fold to secure its passage. It’s surprising to me that more senators don’t use this holdout card to secure better treatment for their states rather than be a predictable vote that gets an atta-boy and a back slap and not much else, but I digress. Now, the Senate bill will go back to the House where it can’t be altered from the Senate version lest it must then return back to the Senate for another vote there. There are around five congressmen who either voted no to the earlier version or are now expressing reservations with the Senate’s changes. With a slim House majority, Republicans can afford only three defections from a full House vote. President Trump wants the bill on his desk to sign into law by Friday, but that deadline is totally man-made. It could slip into next week without any real consequence.

 

• If you were looking for signs of the labor market weakening from the May Job Openings and Labor Market Survey, you didn’t find it. Job openings rose from 7.395 million to 7.769 million. The level one year ago stood at 7.901 million. So, a nearly flat performance in openings over the past year and certainly nothing indicating an imminent softening in the labor market. The number of openings to unemployed is 1.01, similar to recent results, and well off the peak of 2 openings to 1 unemployed person when labor markets were at peak tightness post-covid lockdowns.

 

• The Quits Rate (voluntary separation/total employment) rose from 2.0% to 2.1%. Once again, the number of May quits, 3.293 million, is similar to last May’s level of 3.355 million. Thus, quits are at a stable level and if anything, the slight increase in May argues against recent consumer surveys indicating increasing difficulty in finding a job. I mean, if increasing numbers of employed workers are voluntarily leaving that doesn’t seem to indicate real concern over finding a new job. To be fair, this report is a survey too, so it’s not necessarily a case of soft data conflicting with hard data, but this report generates number estimates from its responses versus subjective market impressions checked off on a questionnaire. Thus, I put more weight on the BLS JOLTS report vs. the various consumer surveys.    

 

• The June ISM Manufacturing Survey posted 49% in June, a 0.5% increase compared to the 48.5% recorded in May, and slightly better than the 48.8 median Bloomberg expectation. The ISM noted that a Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.
  • The New Orders Index contracted for the fifth month in a row to 46.4% vs. 47.6% in May.
  • The Prices Index increased to 69.7%, up 0.3 percentage point compared to 69.4% in May.
  • The Employment Index dipped to 45.0%, down 1.8 percentage points from May’s 46.8%.
  • Uncertainty around tariff policy and increasing costs from tariffs were the oft-cited comments from respondents. On net, while the headline slightly beat expectations, the underlying metrics of prices paid, employment, and new orders all point to a sector struggling to maintain in the current tariff-induced uncertainty.

 

• The ADP Employment Change Report for June was released this morning with a decline of 33 thousand private sector jobs vs. an increase of 29 thousand in May (revised down from 37 thousand). Small and mid-sized firms bore the brunt of the cuts with large firms (500+ employees) still managing to gain 30 thousand jobs. Professional and business services (-56k) and education and health services (-52k) were the sectors losing positions. Leisure and Hospitality was the leading job gainer for the month, but manufacturing and the goods side in general saw gains as well. That seems odd as they have been some of the better performing sectors of late. It’s the first monthly decline since March 2023, but before you begin running for the recession hills recall May’s BLS release reported 140 thousand new private sector jobs. The large disparity between the two reports has made ADP suspect in its predictive ability for the BLS number; however, the first decline in two years will get the Fed’s attention along with investors trying to divine a possible July cut. Odds moved from 19% to 25% for a cut following the ADP release. Presently, estimates for tomorrow’s June BLS report are for 108 thousand new private sector jobs. Today’s report adds to the intrigue for what we will see tomorrow.

 

• The other oft-cited numbers from ADP were annual wage gains and for job-stayers it registered 4.4% in June vs. 4.5% the prior month, a steady result of late. Job-leavers saw annual wage gains of 6.8% in June vs. 7.5% in May. BLS has been reporting annual wage gains at 3.9% with 3.8% expected for June. Stable to softening wage gains are another indicator of the waning in labor market momentum.

 

• Obviously, the BLS jobs report tomorrow will begin to set the debate parameters for a possible July cut, and with today’s ADP print it does heighten the anticipation for the release. Stay tuned.

---

 ADP Employment Change Report Prints First Job Losses in Two Years

---

JOLTS Reported an Unexpected Increase in May Job Openings

---